Fine Organic Q2 Results Review - Margin Under Pressure Due To Weak Medium-Term Outlook: Motilal Oswal

Motilal Oswal Report

The long-term prospects for Fine Organic Industries Ltd. remain robust, as the company operates within the oleochemicals industry and has consistently driven growth through research and development innovations over the years. However, we anticipate that its performance may be adversely affected in the near-to-medium term due to the following:

1. longer-than-expected delays in the commissioning of new capacities for expansion,

2. existing plants operating at optimum utilization with no potential of debottlenecking, and

3. further delays in the commencement of commercial supplies from the Thailand joint venture.

We estimate a revenue/Ebitda/PAT CAGR of 11%/0%/-5% over FY24-27, with margin in the range of 20-21% during the same period. Fine Organic is currently trading at ~44 times FY26E EPS and ~30 times FY26E EV/Ebitda. Valuations appear expensive for a company that is going to experience earnings decline during FY24-27.

We reiterate our Sell rating on the stock with a target price of Rs 3,885.

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